Never Company developed the following information about its inventories in applying the lower-of-cost-or-net realizable value (LCNRV) basis in valuing inventories: If Never applies the LCNRV basis, the value of the inventory reported on the statement of financial position would be

Question

Never Company developed the following information about its inventories in applying the lower-of-cost-or-net realizable value (LCNRV) basis in valuing inventories:  If Never applies the LCNRV basis, the value of the inventory reported on the statement of financial position would be

Quizplus · Accepted Answer

To determine the inventory value using the LCNRV basis, Never Company compares the cost of each individual item in inventory to its net realizable value (NRV), which is the estimated selling price minus any costs to complete and sell the item.

For the 100 units of Product A, the cost is $4,000 and the NRV is $5,000 ($50 selling price x 100 units = $5,000). Therefore, the inventory value for Product A is $4,000.

For the 200 units of Product B, the cost is $8,000 and the NRV is $3,750 ($25 selling price x 150 units = $3,750). Therefore, the inventory value for Product B is $7,500 ($37.50 cost x 200 units that have not decreased in value + $750 for the 50 units that have decreased in value).

For the 50 units of Product C, the cost is $750 and the NRV is $600 ($12 selling price x 50 units = $600). Therefore, the inventory value for Product C is $600.

Adding up the inventory values for each product, the total value of inventory at LCNRV is $12,100.

Therefore, the correct answer is C) $525,000, which is the sum of the original inventory cost ($537,000) minus the LCNRV adjustment ($12,100).

Never Company Developed the Following Information About Its Inventories in Applying